When we try to reduce Inj f (f :+: g), it looks like we should just use the second equation. Instead, we fail to reduce. This is because GHC is worried about the possibility of the first equation firing, in the event that f ~ (f :+: g). This fact can happen only if f is infinitely large. On the surface, this seems impossible, but shenanigans in this area can cause unsafeCoerce. See #8162 (closed).

I don't see an easy way to fix this, but the fact that GHC can't cope (well) with this example tells me something is wrong. Here is one idea of how to proceed:

If we somehow ensure at reduction time that f is finite, we're OK. If we need finiteness in terms, we use deepseq. Can we do this in types? I tentatively say "yes".

To reduce, say, bSeq5, we'd need to know concretely what b is. We can then build Deepseq similarly to how deepseq at the term level works.

The closed type family mechanism could then detect cases like Inj, where the whole infinite-type thing is causing trouble. (I conjecture that detecting this is not hard, as there's a specific line in the Unify module that triggers in the worry-about-infinite-types case.) In the case of Inj, something like Inj f (f :+: g) would reduce to fDeepseqFalse. Note that the call to Seq wouldn't be written in the closed type family definition, but would be inserted during reduction as appropriate.

This solution is ugly. And it requires magic to define Seq in types (we need an instance for every type!) and weird magic in closed type family reduction. The definition of Deepseq might also benefit from being magical. It would be annoying to explain to users, but no more so than the current crazy story. In general, I don't like this idea much, but I do think it would work.

In any case, this ticket is mainly to serve as a placeholder for any future thoughts in this direction. It's quite annoying to have the specter of infinite types cripple otherwise-sensible closed type families.